Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods

Professor Jacob S. Ziegel, University of TorontoJuly 1981

(. . .)

Article 35

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would
ordinarily be used;

(b) are fit for any particular purpose expressly or impliedly made known to the
seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;

(c) possess the qualities of goods which the seller has held out to the buyer as
a sample or model;

(d) are contained or packaged in the manner usual for such goods or, where there
is no such manner, in a manner adequate to preserve and protect the goods.

(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of
conformity.

COMMENT

1. From a practical point of view, art. 35 is one of the most important articles in Part III of the
Convention. Paragraph (1) of art. 35 states the seller's express obligations with respect to the quantity, quality, and description and packaging of the goods and really only states the obvious. Paragraph (2) addresses itself to the seller's implied obligations with respect to the general and particular fitness of the goods, their packaging, and their required qualities where there is a sale by sample or model. These obligations are only presumptive and are displaced to the extent that the parties "have agreed otherwise". One important example of such displacement is given in paragraph (3), viz. where at the time of the conclusion of the contract the buyer knew or could not have been unaware of such non-conformity.

2. The corresponding provisions are to be found in OSGA ss. 14, 15 16, and 55 and its provincial counterparts. There are close resemblances between the CISG provisions and the provincial provisions but there are also some material differences. There are also some unanswered questions. A detailed comparison would require a lengthy exposition: in the interests of time I confine myself to the following points:

(1) Quantity, quality and description "required by the contract". It frequently happens that the conclusion of a contract is preceded or accompanied by representations by the seller concerning the quality, fitness or other characteristics of the goods offered by him. To what extent will they constitute part of the contract under CISG and what is the applicable test? Is it necessary for the buyer to show that they constitute part of the bargain or will the seller's liability rest on a different theory. If so, which? Will the representee be entitled to invoke non-contractual as well as contractual rights?

Existing Anglo-Canadian law holds that such representations will not form part of the contract--will not be treated as a "warranty"--unless the representor intended them to have contractural effect. See e.g., Esso Petroleum v. Mardon (1976) 2 All E.R.5 and compare Oscar Chess Ltd. v. Williams (1957) 1 W.L.R. 370 (C.A.). Whether or not the representation amounted to a warranty, the representee will be entitled to invoke his equitable rights of rescission in appropriate circumstances (Leaf v. International Galleries (1950) 2 Q.B. 86) or sue for damages for negligent misrepresentation under the Hedley, Byrne doctrine: Mardon's case supra, and compare Nunes Diamond Ltd. v. Dominion Electric Protection Co. (1972) S.C.R. 769. American law allows recovery for breach of warranty without proof that the representor intended to give a warranty so long as it was reasonable for the buyer to rely on the representation and it did in fact induce him to make the purchase: see s.12 of the Uniform Sales Act. UCC 2-313(1)(a) adopts the test of whether the representation has become "part of the basis of the bargain".

The question is not discussed in the [Secretariat] Commentary, but my prima facie impression is that the buyer will not be able to invoke art. 35(1) unless he can show that the representations formed part of the contract in accordance with the general test of intention adopted in art. 8, supra: in other words, that CISG adopts the common law (and, I believe, civilian) approach to the nature of the seller's warranty obligations and not the American approach. Since CISG provides no remedies for non-contractual misrepresentations, this leads to the conclusion that the buyer will be remitted to the applicable national law for his remedies. This may be an unfortunate (if inescapable)result since contractual and non-contractual remedies in the sales area should be viewed as part of a single continuum.

(2) Merchant and non-merchant sellers. Art. 35 does not distinguish between merchant and non-merchant sellers. The distinction is fundamental in the Canadian common law since the statutory warranties of merchantability and fitness only apply to a seller "who deals in goods of that description" (OSGA 15.2) or to goods of a description that is in the course of the seller's business to supply (OSGA 15.1). As I understand it, the civilian approach is somewhat different but the distinction between commercial and non-commercial sales is equally relevant in many civilian systems in determining the seller's liability for latent defects.

It is not clear why CISG ignores the distinction and the [Secretariat] Commentary throws no light on the question. One reason may be because it was assumed that the convention as a whole only applies to commercial sales. However, as indicated in the Comment to art. 1, this is not clear and even if it was it would not answer the questions whether a seller is liable for breach of the implied obligations under art. 35(2) so long as he is engaged in a business or whether it must be shown that he was selling the goods in the course of his business. There is an important difference between the two tests. See OLRC Sales Report, p. 209. At the Vienna Conference Canada introduced a resolution to amend art. 35 to clarify these and other points but the attempt was not successful.

(3) "Are fit for the purposes". The test of merchantability at common law and under the Sale of Goods Acts goes beyond the use of the goods sold and also embraces their resale value. The test is whether a reasonable buyer, knowing of the defects, would have bought the goods without an abatement on the price. See the discussion of the meaning of merchantability in Kendall v. Lillico (1969) 2 A.C. 31, as qualified in Brown & Son v. Craiks (1970) 1 WLR 752 (H.L.). Thus goods may be unmerchantable even though fit for use: e.g., a new vehicle with discoloured paint work or badly scratched furniture. It may be that "fitness for use" has a wider meaning to a civilian than to a common law lawyer, but it would have been better if the answer to so basic a question had not been left to conjecture.

(4) Relevance of all surrounding circumstances in determining merchantability. The common law test of merchantability, as now given statutory effect in the U.K. Sale of Goods Act, requires the court to take into account all the surrounding circumstances. Art. 35(1)(a) only refers to the purposes for which goods "of the same description" would "ordinarily" be used. This falls markedly short of the Anglo-Canadian test. It is not clear, for example, to what extent price would be a relevant consideration.

(5). Actual or constructive knowledge of non-conformity. OSGA 15.2 provides that if the buyer has examined the goods before the sale there is no implied condition of merchantability as regard defects that "such" examination "ought" to have revealed". This language has been criticized by commentators as too favourable to the buyer because of its subjective character. However, art. 35(2) appears to be even more lenient since it seems to require actual knowledge of the defect by the buyer or the presence of such obvious defects that he could not have been unaware of them.